Small Companies with Little Expertise Win Huge Contracts without Competitive BiddingDecember 03, 2010
 Federal agencies, including the Pentagon, are increasingly avoiding competitive bidding for contracts by turning to small companies that are owned by an Alaska native corporation (ANC). Firms labeled as an ANC can receive federal contracts of any size without competition because of special exemptions granted by Congress in 1971 to help lift Alaskan natives. Since then, almost 300 ANCs have been formed, receiving more than $29 billion over the past decade. But several problems have crept up, according to an investigation by The Washington Post. For one, contracting specialists note that competitive bidding usually leads to the best deals for taxpayers. Given that these small companies contract out because they are not equipped to do all the work required in complex projects, the subcontracts instead add to the cost to taxpayers. Another problem: Most ANCs are subsidiaries of larger, non-native companies—many not even based in Alaska—so most of the benefits never reach the intended beneficiaries. As a result of the investigation, three ANCs were suspended from federal contracting work, according to the Post. Democratic Congressman Henry Waxman of California, who investigated the ANC program a few years ago, told the Post: “It’s a misuse of taxpayers’ dollars.” While the exemption created by Congress in 1971 might not be in danger of elimination, Lawrence Gelburd, a management and entrepreneurship lecturer at Wharton, notes that “this type of behavior may conflict with the public's perception of the law’s intent.” Should there be stronger oversight over the ANC program? Gelburd says that, as with all business arrangements, there is the classic tradeoff of efficiency and oversight. “The resources applied to supervision should be proportional to the potential negative consequences of the operations in question,” he noted. |
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